President McKinley signs Gold Standard Act, March 14, 1900

On this day in 1900, President William McKinley signed the Gold Standard Act, which established gold as the sole basis for redeeming paper currency. The act halted the practice of bimetallism, which had allowed silver to also serve as a monetary standard. It set the value of gold at $20.67 an ounce and valued the dollar at 25.8 grains of gold.

In the run-up to passage of the act, the nation went through a decades-long epic political battle over the relative value of gold and silver — a battle that tested whether one of those precious metals should be preferred over the other in the U.S. monetary system. Introduction of paper currency during the Civil War had complicated this debate because it promised to redeem the money in either gold or silver upon demand.

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In the latter half of the 19th century, the populist movement sought to inflate farm prices through the wider use of paper currency. It called for using silver, which was more plentiful than gold, as backing for the currency. A high point of the movement was the “Cross of Gold” speech by William Jennings Bryan at the 1896 Democratic National Convention. McKinley defeated Bryan in the November election.

In 1933, President Franklin D. Roosevelt changed the value of gold to $35 an ounce. The Gold Reserve Act of 1934 withdrew gold from circulation as a further effort to combat the effects of the Great Depression.

After World War II, members of the International Monetary Fund were required to maintain their currencies at a set parity against the dollar, thereby tying much of the world to a dollar standard that was in turn tied to a gold standard. With inflation soaring, President Richard Nixon in 1971 closed the “gold window,” refusing henceforth to let foreign governments exchange their dollars for gold.

SOURCE: “A FINANCIAL HISTORY OF THE UNITED STATES,” BY JERRY MARKHAM (2002)